As mainstream adoption of blockchain has continued to increase, more and more people have started making their way into space without even developing a basic understanding of this technology and how it works - which can limit its success and profitability.
In order to realize the full potential of your operation, it is important to first gain an understanding of the concepts that drive cryptocurrency and blockchain technology. And at the root of these concepts are the building blocks of layered protocols.
Here's a closer look at what application layers and protocols are and how layer-one protocols serve as the foundation for the scalability and future growth of the crypto world.
What are application layers?
Before delving into how layers and protocols work in the blockchain space, we first need to understand how application layers work in the computing world.
Application layers - sometimes referred to as tiers - serve to mask the finer technical details of a platform while also serving as that platform's main user interface. Application layers are responsible for hiding a system's operations behind the scenes to make the platform easier to use and less complicated for the end user.
Web development can be seen as an example in this lens, where the underlying code is the primary layer that only the developers understand, while the web pages themselves are the application layer that can be easily used and interacted with by everyone else around the world - regardless of whether they understand how the code works or not.
The same concept can also be applied to blockchain technology, where layers (or levels) are used to establish protocols that define how a given network works and how users interact within that platform.
Blockchain protocols facilitate all information exchange and dictate all processes within a given network, including:
- transaction validation
- system security
- Interaction of participating nodes
- And more
Legacy networks like the Internet and websites have what are known as thin protocols and fat applications, where the underlying layer has tremendous value but mostly goes unnoticed by the majority of users of that network.
However, this is being reversed in the blockchain world, with fat-protocol networks and thin-protocol networks having applications where most of the value is concentrated at the shared-protocol layer.
For example, consider Bitcoin. Despite the network's massive market capitalization (over $1.1 trillion at the time of writing), the level of revenue from applications built on this network remains fairly small.
Same could for Ethereum be said to have a market cap of over $500 billion at the time of writing and thousands of DApps running on the network.
Layer One Protocols
Layer One protocols - sometimes referred to as implementation layers - refer to a system connected to the base or underlying architecture of a blockchain network. The Layer One protocol specifies the entire set of rules and parameters for the network, including:
- Consensus algorithm
- block time
- transaction throughput
- And more
In the case of Bitcoin, the Layer One protocol sets the Proof-of-Work-consensus algorithm and the 10-minute block time, in addition to any other rule that the network and each user within it must follow in order to complete transactions and receive block rewards.
In some cases (like Ethereum), layer one may be preceded by a "layer zero" that lays the groundwork for components to support a new layer on top. Binance Smart Chain is a Layer One protocol similar to Ethereum at a fundamental level, but built on top of its Layer Zero to offer lower transactions and higher transaction speeds. For Bitcoin, this layer would include the hardware, internet, and other components that combine to create the smooth operation of layer one.
Perhaps the most notable aspect of layer one is that it serves as a foundation upon which to build to make improvements to the network that will benefit the end user. Any such layer-one solution would directly change the rules of the protocol, such as increasing the amount of data contained in each block or accelerating the speed at which blocks are acknowledged to increase the overall throughput of the network.
Stay tuned for future content that dives deeper into layer two protocols and how they fit into the blockchain's three-layer protocol ecosystem.